Asia Fine Diamond

Well, of course, we regard Josep and his colleagues as real gems, real diamond geezers (as cockneys are supposed to refer to good, reliable guys), and I’ve worked with Josep on several blogsin the past. But one company (apparently calling from London) thought Ontinet should take things a step further by investing in some gems of their own.

The first approach was an email newsletter with some almost lurid photographs of colour diamonds and some links to diamond-related articles. These are genuine articles but they originate from external sources such as the BBC. Then there was a follow-up phone call, asking to speak to the boss. Being told that he was unavailable, they asked for an email address to which to send their brochure.

Which was slightly bizarre, given that they clearly already had an email address: even more bizarre, in that the email received in due course didn’t include the brochure. On the other hand, the email asserted that in the course of the phone call it had been “indicated during our brief conversation that you are presently liquid to consider an acquisition in the GBP £2000 to GBP £5000 range.” (In fact, no assurance had been made.) And maybe they didn’t want to be too forthcoming with their address details.

A subsequent call was received from someone who was apparently a native English speaker but with a strong regional accent that Josep was unable to identify, asking to speak to the staff member who took the original call. He didn’t give his name, though he was asked three times to do so. He rang back several times before finally getting the message that Ontinet wasn’t interested in buying or trading in diamonds.

That’s the story (in brief) as I heard it from Josep. But is it a scam, or just aggressive salesmanship? (Well, both aggressive and inept, since they didn’t even manage to deliver their brochure.  However, I was able to find a copy on their web site: it combines some more highly colour-saturated photographs, some accurate but generic information about diamonds in general and colour diamonds in particular, and some less verifiable assertions about their investment potential.)

Clearly, ESET doesn’t have the investigative powers of a law enforcement agency (though we work with law enforcement from time to time), and extensive research on the internet hasn’t turned up real proof of malicious intent or illegality, despite seeing claims in internet forums of fraudulent practice by the company in question and others allegedly run by the same people. However, it does look like a type of Boiler Room scam that has reported for many years, in various forms. In fact, it’s a variation on a very old scam tweaked to suit the age of the Internet.

A Boiler Room scam is one where a call centre sells dubious investments over the telephone. Traditionally, it’s associated with various kinds of stock fraud, especially ‘pump and dump’ fraud where the price of the stock is artificially inflated: the victims’ purchases provide profit for the stock seller but if they try to sell, they discover there is no real market for the shares.

A common model goes something like this: the victim gets an unsolicited phone call from a broker offering an ‘investment opportunity’. Often the caller claims that there is no direct connection between the broker and the stock being pushed, and that he’s offering a service based on stock analysis from his company’s research department (which often doesn’t exist). The broker won’t pass on any negative information about the stock, and will promise improbably high rises in its imminent value.  The brokers are essentially low-grade telemarketers working from a script.

More recently though, we’ve seen increasing interest in ‘alternative investments’, especially collectibles such as art, fine wine, antiques, jewelry and precious stones, which are acquired in the expectation that their value will rise.  Perhaps it is inevitable at a time of recession, when few businesses thrive and even real estate doesn’t hold its value consistently, that people are more inclined to consider diversifying into these areas of investment.

However, the alternative investment market isn’t without its problems, and in fact, there is little evidence that the people with the most money to invest – and the best understanding of investment strategy – are consistently backing this particular horse. There are a number of reasons for this, not least the limited availability of historical data showing how profitable – or how risky – this market really is.  Where stocks and shares have a determinable unit price, however wildly that price may vary over a period of time, it’s usually far harder to ascertain the current market price for unique items such as individual works of art, rare bottles of wine, or gem stones.

Scammers, however, have been observed encouraging relatively small investors to invest in colour diamonds, using similarly unverifiable claims of future rises in value. While the initial call (from the ‘opener’) may refer to quite manageable sums, later conversations are likely to pile on the pressure for the victim to increase his portfolio, often using time-sensitive gambits such as ‘buy right now to get an especially good deal’. Some scammers use a 419-like technique for informing the victim of difficulties with the portfolio that require a further purchase. (And another. And another. Or some other practical difficulty that requires further outlay on the part of the victim.) As with 419s, victims get deeper and deeper into the mire because, against hope and reason, they want to believe that there’s just one more payment between them and a huge profit.

Strangely, ‘white’ diamonds are graded and valued – among other criteria – on the purity and near-absence of their colour, whereas colour diamonds are graded on the intensity of their colour: red diamonds are apparently particularly prized. However, most of us would have difficulty in mapping the four Cs (Cut, Colour, Clarity, and Carat weight) to a specific stone.

Unfortunately, while scammers promise a consistently steep increase in market value, ignoring the uncertainties of the market and the fact that it’s not so easy for those of us who don’t live between the pages of a Ludlum novel to carry diamonds around to convert into cash, without attracting the attention of law enforcement (not to mention burglars and muggers!). One variation is that the scammer offers a service whereby the diamonds (or bottles of wine, or other valuables) are stored for them.

Apart from the potential for providing additional (rental) income, for a scammer it has the advantage of making it harder for the victim to keep his investment in view. In some cases, the object may not exist at all. In a case I came across from the 1990s, the gems were supplied to the victim but they were of poorer quality than the victim was led to believe, and they were supplied sealed in plastic. If the seal was broken, the accompanying certificate of authenticity was invalidated and the gem could not be returned to the dealer for resale. Obviously, this prevented a proper examination and valuation of the gems. It’s a common feature of investment scams to try to keep the victim locked into a relationship with the scammer: that way, he stays unaware for longer of how little worth his investment really has.

Of course, that’s always easier with an investment that’s off somewhere in the distance, like a timeshare apartment or the corner of a wine cellar.  And it saves a lot of trouble if the victim insists on trying to recoup his investment: you can just say that the market has flat-lined.

So how do you avoid being stung?

• Be especially suspicious of irresistible offers that come wrapped in an unsolicited telephone calls. Cold calling is for the benefit of marketers, not your benefit. Not all marketers are scammers, of course, but don’t expect altruism. As they say, if it sounds too good to be true, it probably is. (Some clichés really are over-used because they make sense.)
• Investigate before you negotiate. Due diligence and research into the company you’re dealing with – make sure that the people you’re talking to really are the company you think you’re dealing with! – is worth the effort even before small investments. If you’re being pushed into making a hasty decision because the offer is about to expire, that suggests that they want you to sign up before you have time to find out enough about them to be discouraged.
• It’s easier than you think to put together a glossy e-brochure. Think critically: don’t be lulled by some pretty photographs, some random (if genuine) links, some info cut and pasted from Wikipedia, and a lot of marketing puff. Any scammer knows that you can pass off some pretty big lies just by mixing them with lots of stuff that’s easily verified. Why do you think 419 scammers are so fond of quoting real news articles?
• If someone offers you an insider tip, the first question to ask yourself is “why me? Why do I deserve special treatment?”
• Stay alert for such red flags as “risk free”: not a phrase that fits well with ‘high yields”…
• Don’t forget how easy it is to use one or more false identity online, for an individual or an organization.
• The Internet has made it a smaller world: but don’t forget that scammers often like to operate across national borders because it makes certain kinds of scam easier to implement, and can make legal redress very complicated.
• Be absolutely suspicious of people who are evasive about their names, contact details, full details of transactions, and so on. But don’t forget that people can cheerfully give full and totally incorrect information on the assumption that you won’t check it. Well, perhaps you will. But clearly there are people who don’t.

[Bottle diamonds from the Pierre Jourdan cellars, Franschhoek, South Africa: courtesy of Small Blue-Green World.]

David Harley CITP FBCS CISSP
ESET Senior Research Fellow